J 8*solve in 50 mins i will give thumb up. Q8) (1%) Suppose that on 27 October 2022, Wall Street Journal in NewYork presents the following price for 27 March 2023 call options on Microsoftstock (in $ USA)strike 75 80 85price 11 7.96 5.5while the annual interest rate is 4% per year. On this date (27 October2022) the Microsoft stock was trading at $81.625.Suppose we decide that the volatility of the market is 30%. Should youbuy the call option as the European one with strike price $80? Justify youranswer.

is less than fair value will be calculated below-- Given X Strike Price =80, Months of expiration…

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Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

J 8* solve in 50 mins i will give thumb up.

Q8) (1%) Suppose that on 27 October 2022, Wall Street Journal in New
York presents the following price for 27 March 2023 call options on Microsoft
stock (in $ USA)
strike 75 80 85
price 11 7.96 5.5
while the annual interest rate is 4% per year. On this date (27 October
2022) the Microsoft stock was trading at $81.625.
Suppose we decide that the volatility of the market is 30%. Should you
buy the call option as the European one with strike price $80? Justify your
answer.

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The investorwill like to buy the call option, if the faire value calculated is more trhan the market

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Suppose that Stock XYZ is currently trading at $50 and does not pay any dividends. Using a binomial tree with two periods, we would like to price a European call option with a strike of $50 and a maturity of six months. Assume that annual continuously compounded interest rate is 1% and the volatility of the stock is 30% per year. What is the value of q? 0.5565 0.4709 0.5000 0.3401 0.5000. You selected this answer.
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